The causes of voluntary resignation of independent directors

Abstract

In this research we investigate the possible determinants of voluntary resignations of independent directors. The results from 82 IPO firms with voluntary resignations of independent directors in the 2002-2006 periods show that independent directors concern more of the governance structure than of the performance and risk measures when making resignation decision. Specifically, we find that the most discerning variables for voluntary resignation are related party transactions, non-unqualified reports from the associated auditor, and total shareholdings of the large shareholders. Independent directors under the adverse conditions that hinder them from effective monitoring would choose voluntary resignation. Our findings potentially contribute to the literature in two threads. First, we comprehensively investigate the possible determinants from different dimensions and find that corporate governance would be more important than performance and risk in triggering the voluntary resignations of independent directors. Secondly, we prove that independent directors in an ownership-concentrated economic such as Taiwan are at best performing passive monitoring. Resignation would be their last resort when they are incapable of counterbalancing the predominant power of controlling owner